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tv   [untitled]  CSPAN  June 6, 2009 4:30pm-5:00pm EDT

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call. the fact that this man could swindle as many people as he did with impunity for so long to me is nothing short of amazing. in fiscal year 2008, the sec staff handled over 600,000 tips sent by individuals to your enforcement complaint center. i did a quick calculation, i think that's more than 2,000 a day for every business day, people sending in something you want to look at. that to me is an overwhelming number. perhaps you could put that into some kind of perspective. now some have taken a look inside your agency and asked whether the enforcement function within the agency is a healthy one. is there a risk-adverse culture within the sec, a step up and say, you know, we ought to take a look at this mr. madoff or people like him. so let me ask you at the outset, number one, what would be the optimal number of people that
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you believe you need to do an effective job at the sec in light of the volume of business that you have to regulate? and secondly, do you perceive a cultural problem within the agency when it comes to enforcement? >> thank you very much, mr. chairman. i think you eve really summarized very well with respect to the staffing, pressures on the sec, the current situation. with over 35,000 regulated entities and 3,700 staff, it's a job we really can't do in the way the public would like to believe we can do, in the sense of routine on-site presence in many regulated entities. that's going to really require that we leverage third parties. so for example n the rules i discuss related to the custody customer assets by investment advisers, a huge problem in the madoff area. we're going to rely on pcaob registered accounting firms to
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leverage our capability to ensure the customer assets are being protected by the custodians and by the investment adviser ps. we will look for every opportunity we can to leverage third-party resources. but at the end of the day, we need significantly more staff, i believe, to keep up with the growth and the complexity of this industry. and if there are additional responsibilities as a result of regulatory reform that accrue to the sec in the context of the hedge funds, credit default swaps or other areas, that will require additional resources because we can't stretch any thinner than we already are. so i do believe, and if you look at our 2011 budget request, you will see we've asked for a significant ramp-up in the number of fte, close to 400 fte and 1,000 new positions. and i believe we're able to achieve that number in 2011 or over the course of the next several year, that will go a long way to getting this agency
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to the appropriate size to handle the job in front of it. i don't think there's any danger that we're about to become too big in any event bp with respect to your second question, the madoff fraud is a tremendous tragedy, it's really a tragedy of epic proportions. and i think it really will put the onus on this agency to prove that it is capable of managing the responsibilities that it has been given under the law. and it's really critically important for us to ensure that our culture, our operations and our procedures, our staff and our skill sets are up to the task. you pointed out, for example that we get somewhere around 600,000 to, in peak years 1.5 million tips a year. we can't manage those that come into the organization through a wide variety of entry points. we don't have databases that are connected so we can do a trend analysis of those tips and
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complaints or connect those complaints to external sources of data to see what might be doping more broadly in the marketplace. right after i started, i brought in enterprise modernization to do a complete review of how we handle tips and complaints. they con clued their first round of their work and we're now in the implementation phase of short-term and intermediate-term remedies and processes to help us manage tips and complaints. but it's also about leadership and freeing our enforcement division to do the kind of job i know they're capable of doing. i was at the sec years ago when the agency had a first-class reputation for aggressive enforce. . i know we're capable of that again. we have a new enforcement director who's very committed to bringing large cases in a timely way that have the maximum investor protection impact. it's about enabling our enforcement staff through technology and the right skill sets to bring those kinds of cases.
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when a whistleblower presents them with information as happened in the madoff case, they have the ability to understand it and pursue it. it's about being humble in the information that comes to us that there's real value in what's being presented to us. we need to reward whistleblowers as the irs and other agencies do when they bring us well formed cases and documentation, a fraud that we can then pursue. it's about filling the regulatory gap through rules like the custody requirements i just spoke of, so we're sure the regulatory regime, coupled with aggressive enforcement, coupled with the tools and the skill sets combine to create an agency that's absolutely committed and focused on investor protection. i'm sorry, that's a very long answer. >> no, it's very good answer. i thank you for it. i going to turn to senator collins and return in later rounds. >> thank you, mr. chairman.
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ms. shapiro, you talked about the increased number of positions that you have requested. as part of the fiscal year '11 budget, 2011. but, in fact, the president's budget for this coming fiscal year does not allow you to hire any new positions, is that correct? >> that's correct, senator. the increase in the 2010 budget covers the annualized increases in 20909:00 budget that we were able to have as a result of the aprooul of our reprogramming requests and taking $17 million of unobligated funds from prior years, dedicating those to staffing, additional staffing in 200 the. the annualized costs of those 50 positions that we're bringing on this year are the increase in the 2010 budget. >> do you need new positions for
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the upcoming fiscal year? >> i would say that first of all we're extremely grateful for the president for the increase in the 2010 budget and it's a meaningful increase for this agency. naen 2011, we saw a much greeter increase. the opportunity to move towards that 2011 budget earlier would be a wonderful opportunity for us to bring that number of staff on over a two-year period rather than all in 2011. if congress ultimately approves that number. >> i am troubled the current funding level supports a staff that's 5% lower than your peak level back in fiscal year '05. if you look at the growth of regulated entities, and if you look at the amount of money involved, if you look at the number of american families who now have savings in the stock
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market, the fact that the staffing levels are below what they were five years ago is troubles to me. are you saying it would be helpful to ramp upstarting the next fiscal year, rather than waiting to fiscal year '11. >> absolutely it would be helpful. getting a jump on 2010 allowed us to get technology investment. we need fundamentally more to support our enforcement and examination programs, and we can use more boots on the ground in enforcement and examination, absolutely. >> aggressive enforcement is absolutely critical. there's another way that's important for protecting investors. particularly smaller investors
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who may be less sophisticated in choosing their investments. and that is through a robust education effort. you've spoken about the need to protect investors. i i've seen thousands of individuals who have seen their retirement nest egg shrink, money set aside for their children's college education virtually disappear . they're wondering what can be done about it. think ear seeking more information. the sec used to conduct very valuable educational meetings, outreach to seniors groups. particularly small investors are
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affected in two ways. one, to help them better understand risk and suitability requirements and two, to help them fight scams. >> we did investor kwaur roms which the sec used to do jeers ago around the country with great success all across the country. the sec has a small program that does that now. just last week with our boston office in the state of maine. my plans would be given resources that we dramatically increase our program. we enable offices around the country to provide localization in community center, seep yor
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citizen center, local high schoo schools, and we really take a role in educating investors about the kinds of questions they need to ask when they're being offered investment products, about the kinds of scams and pitfalls that they need to be on the alert to. i'm very concerned given the current environment and the amount of money people have lost in their retirement plans and other investments they will be reaching to try to make that money back through some particularly risky investments. i have no doubt that the scam a artist have already figured this out. the sec can play a critical role here bringing together other agencies of the federal government but also on its own reaching out very directly as well as through the development of content to put on twwebsites and in investor forums. >> thank you. glad to hear it. >> chairman shapiro, you come
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into the sec, an agency that's been around for 75 years and probably come into it at a time when it's in an all-time low as far as both morale and effectiveness. so you've got to rebuild this agency, i think maybe not from the ground up but from the foundation up. we have talked about manpower levels. if you have the technology that you spoke about, do you have a figure in mind about what the right number of people are for this agency, considering the massive workload? >> it's very hard to give our exact numbers. the 2011 request seeks 1,000 additional positions, which would take us to just under 5,000. that still would be smaller than the fdic, which regulates about 5,000 to 6,000 banks. i do think there's also practical limitations on how many people you can just bring
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onboard and train at any given time. the faster that we can move towards a substantial increase like that, i think the better. it also depends largely on our ability to effectively utilize technology to save on human resources. >> right on. consumer skfd one of the things everybody is concerned about. we've lost a bunch of money, people's confidence is shaken. what do you see as being two or three of the major things that you have to do in your agency to have consumer confidence back at a level we'd like to see. >> i think it reelsly critical
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for investors to see there's a cop on the beat trying to enshue people aren't taking advantage of people in the rest of the marketplace. we need to have a very timely enforcement response to the problems that arise in the marketplace. we can write all the rules we want, but if nobody is enforces them we're not going to restore consumer confidence. i think they also have to have confidence in the transparency of corporate disclosure. they need to be confidence the companies are given them accurate numbers and accurate information about the company's prospects so they can make infortunatelied decisions about their money. and i think we have to have a focus on mutual funds sales, on sales practices generally. on the issues around fees and fee structures, and disclosure
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that investors reelly care about at the end of the day. we'll be announcing the creation of an investor advisory committee. for the first time in many, many years at the sec, we'll give investors a regular way to interact with the commission on policy issues that are of interest to them. i think we have to reorient everything we do towards rebuilding investor confidence, in both the agency and in the fairness of our markets. >> what do we need to do? congress? >> i think supporting the agency, quite honestly, as the approach aye t-- appropriateors that we're living up to our commitment to the american public. >> the roles of the ze c, the fdic, we heel hear shortly after a regulatory modernization has been done, assuming that goes
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forward, can you talk about the challenges, opportunities, possible consequences of merging your two agencies? >> sure. d, you know, i have the unique position of having the chairman of the sec. in honesty, i've argued both for and against merger over the years. i think it's obviously a decision that's ultimately for the congress about whether or not to combine the two agencies. short of that, i believe that with gary as chairman of the cftc, we can have a constructive and positive working relationship to ensure that products and practices don't fall between the cracks of the two agencies and that we don't leave large swaths of the financial markets unregulated and uh unaccountable to the american public. . >> do you think that would be done better if you were combined? >> my personal view, there's a logic and an efficiency that can
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be achieved from the two agencies. but short of that, i think the two agencies can do a better job of working together to ensure the protection of the investors. >> my time is up. >> i was just advised by my colleagues there's a vote on and i'm going to continue asking until someone returns, but i ask the indulgence of our witness and those of the audience as we try to balance things here. the number of attorneys at the sec decreased 11% between 2004 and 2008, and some believe that resulted in delayed cases, reducing the number that can be brought to trial and potentially undermining the quality of cases that were pursued. how have resource constraints impacted the sec? >> there's no question but that -- and there's a recent gao report that suggests this as well. that the resource constraints have hindered the ability of the
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enforcement division to pursue as many cases in as timely a way as i would like to see. in addition, there are some procedural difficulties placed in the path of the enforcement division over the last several years that slowed cases down, and discouraged, if not explicitly, implicitly, seeking penalties from corporate issuers from certain kinds of cases. and we've eliminated those hurdles and cases can be start much more quickly now. investigations can be pursued with the approval of one commissioner if not the full commission sitting in a meeting. we've eliminated the penalty pilot program and we reorganized in a way we hope will eliminate some play layers of management and some of the stove piping that existed over the years and allow us to be more nimble and
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aggressive in pursuing much larger cases, particularly those arising out of the financial crisis. >> on another issue, there was a mindset for a long period of time that as long as the economy was expanding and wealth was being created, we didn't dwell and ask a lot of embarrassing questions. but with the downturn in the economy, downturn of the fort e fortunes of many people faems and the investment of our federal government into many of the largest businesses in america, there appears to be an awakening on the part of the average person about how many corporations are being managed. and particularly in the area of executive compensation. i won't go into chapter and verse about bonuses given to executives who have nothing to show for it other than failure, but let me ask you, what is the sec currently doing to approve the accountability of corporate directors and enhance disclosure of executive compensation? >> mr. chairman, i've made
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corporate governance one of my highest priorities in the last four months. we're engaged in a couple of things. first of all, in may we approved a proposal that will facilitate the ability of shareholders to nominate on the company's proxy, directors to serve on the company's board. and it's out for comment now. it will be highly controversial, but if it's ultimately approved and not challenged in court, it will greatly facilitate the abilities of shareholders to elect nominees to corporate boards and thereby hold directors more accountable for their oversight of the corporation. with respect to compensation in particular, as you know, we already require disclosure of all planned and nonplanned compensation by the senior most officers of the company. next month, we'll be considering amendments to the compensation sdis closure rules that will simplify something called a
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summary compensation disclosure table to provide more information there about compensation. it will require disclosure about the overall compensation approach within the company. enhanced disclosure about consultants sometimes in a conflicted position and advise on disclosure about the linkage between compensation plans and risk taking by executives, traders and others within the company so that investors will be able to understand how risk-taking, which was such an important component of the financial crisis, has been potentially incentivized in some companies. >> the credit rating agency gaye the sec exclusive authority over rating agency registration and qualification. in theless than three years since enactment, the sec has undertaken no fewer then a five rule makings to implement the
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law. these rules which are relatively new stem from recordkeeping and disclosure and managing conflicts of interest. even though the credit rating agencies were under sec purview, the performance of mortgage securities backed by loans has shaken investor confidence to the core. used to be that credit ratings were kind of like the gold standard in terms of whether you could trust a business to be in solid financial shape. well, i think a lot of questions have been raised. what are you doing at the sec now to restore consumer and investor confidence and what improvements are needed in the way you monitor credit rating agencies. >> there's no question that credit rating agencies play a significant role in facilitating, i guess, in some ways the financial crisis. the agency engages, as you point
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out, in many rule making, most recently the rules in 2008, which required a series of disclosures about performance statistics, the different kinds of models that were used for initial ratings versus surveillance ratings. documentation, disclosure of conflicts and so forth. the credit rating agency reform act, which congress passed in 2006 specifically does not allow the agency to regulate the substance or the procedures or the methodologies of the rating agencies. it's something we're looking at wlrks we need to ask congress to reopen that legislation and provide greater -- >> who does? >> nobody.provide greater -- >> who does? >> nobody. but nonetheless, we are looking at doing a couple of things. one is my perhaps greatest concern is ratings shopping, which allows the creator of a structured product to get preliminary ratings from multiple rating agencies and then select the one they want to
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rate the product, presumably, that being the highest rating they got. >> i wish i could have had that in grade school. shopping for teachers. >> if you give me an a, isle take your class, what that's what it amounts to. removing references potentially to ratings in the federal securities laws and regulations. which gives an air of credibility and respectability to ratings that perhaps they don't entirely deserve. we're looking at whether we should require different symbols versus ratings, corporate debt, and we're look at more detailed disclosure about how ratings have performed over time. so there's some things the sec clearly can do and we are doing. we held a round table with ratings agencies just about a month ago to explore some of the failures of the different business models and some of the -- not the fail yurs of the different business model, but the different business models
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and some of the other failures that have become clear over the last year. we're moving ahead with what we can do and we will come back to congress if we believe at the end of the day we need more authority. >> thank you. i'm going to ask the subcommittee stand in recess for just a few moments and as soon as senator collins returns i'm going to ask her to resume the hearing. i apologize but it just so happens that we have a role call vote on. the subcommittee will stand in recess. [captions copyright national cable satellite corp. 2009] >> both chambers of congress are in session on monday. the house returns at 2:00 for legislative business. on the agenda, a bill reorganizing state department programs for 2010, which also
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includes peacekeeping. also, legislation that increases military and nonmilitary aid to pakistan. the senate gavels in at 2:00 eastern, looking at regulating tobacco products. the vote is expected monday afternoon. it is also possible next week that members could vote on a conference report to the war spending bill. the house is expected to vote on the measure first, followed by the senate. senators could debate a bill to amend the number of foreign tourism. see that live on c-span2. >> there is still time to get your copy of the 2009 congressional directory, with information on house and senate members, the cabinet, supreme court justices, and the nation's government, plus district maps and how to contact committees and caucuses. at $16.95, online ad c-span.org
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/products. >> in his weekly online address, president obama talked about items and his health care agenda, including eliminating costs, eliminating fraud and abuse, and increasing choices. and he is followed by senator jeff sessions, the top republican on the judiciary committee, who discusses president obama supreme court nominee, judge sonia sotomayor. >> over the past few days, i've been traveling through the middle east and europe, working to renew our alliances, and hence, security, and proposed a new partnership between the data states and muslim world. even as i am abroad, and firmly focused on the pressing challenges we face, including the urgent need to reform our health-care system. even as we speak, congress is preparing to introduce an debate health reform legislation that is the product of many months of effort and deliberation.
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if you are like any of the americans i have met across this country who know all too well the soaring cost of health care make our current course unsustainable, i imagine you'll be watching their progress closely. i'm talking about the families i have met his fiat -- spiraling premiums and out-of-pocket expenses are pushing them into bankruptcy, forcing them to go without checkups or prescriptions, business owners who fear there will be forced to choose between keeping their doors open or covering their workers. americans who rightly worry that the ballooning costs of medicare and medicaid could lead to fiscal catastrophe down the road. simply put, the status quo is broke. we cannot continue this way. if we do nothing, everyone's health care will be put in jeopardy. within a decade, will spend $1 out of every $5 we turn on health care, and we will keep getting less for our money. that is why fixing what is wrong with a health care system is no
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longer a luxury we hope to achieve, it is a necessity we cannot postpone any longer. growing consensus around that reality has led to an unprecedented coalition to come together for change. it unlike past attempts at reforming health care system, everyone is at the table, patient advocates and health insurers, business and labour, democrats and republicans alike. a few weeks ago, some of these improbable allies committed to cut national health care spending by 2 trillion dollars over the next decade. what makes this a remarkable is that it probably would not have happened just a couple years ago. today, at this historic juncture, even old adversaries are united around the same bolt -- quality, affordable health care for all americans. i know that when you bring together disparate groups with differing views, there will be lively debate, and that is something i welcome, but we cannot accept is reform. just invest more money in the status quo,
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